Midterm #2 Eco 2301
Refer to Figure 5.2. If the price of a hamburger increases from $6 to $8, the price elasticity of demand equals ________. Use the midpoint formula.
-1.4
Refer to Table 6.1. The marginal utility of the third hamburger per day is
15
Refer to Figure 6.2. Assume Mr. Lingle's budget constraint is AC. If the price of a beer is $3, the price of a gardenburger is
3.00
Refer to Table 6.1. If the price of a soda is $2, the price of a hamburger is $6, and George has $14 of income, George's utility-maximizing combination of sodas and hamburgers per day is
4 sodas and 1 hamburger
Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line segment ________ of the demand curve, the demand is inelastic.
CF
When there are fewer substitutes for a product, the ________ for the product is ________.
demand; less price elastic
The ________ states that things with the greatest value in use frequently have little or no value in exchange.
diamond/water paradox
Refer to Figure 5.1. The price elasticity of demand for tickets
is equal to zero.
A consumer satisfies the condition MUx/Px = MUy/Py when his indifference curve ________ his budget constraint.
is just tangent to
If a price is demand determined, then
the supply curve must be vertical
If a price ceiling is set below the equilibrium price,
there will be a shortage.
If the most someone is willing to pay for an airline ticket to Las Vegas is $300 and the market price of the ticket is $200, then this buyer will get consumer surplus of
$100
Refer to Figure 6.2. Assume Mr. Lingle is on budget constraint AC. If the price of a gardenburger is $6, Mr. Lingle's monthly income is
$240
Jane has $500 a week to spend on clothing (c) and food (f). The price of clothing is $25 and the price of food is $10. What is the equation for Jane's budget constraint?
$25 × Clothing + $10 × Food = $500
Refer to Figure 5.7. The amount the store owners will receive per pumpkin after paying the tax is
$4.25
Refer to Table 6.1. The total utility of five sodas per day is
64
Refer to Figure 6.14. Jason maximizes utility at point
A
Refer to Figure 6.6. Bill's budget constraint is BD. If the price of bell peppers increases, Bill's new budget constraint is
AD
Refer to Figure 4.6. If price is P1, the deadweight loss due to under production is area
C + F.
Refer to Figure 4.6. If price is P1, producer surplus is area
G.
Refer to Figure 4.5. Assume that initially there is free trade. The quantity demanded of CD-Rom drives will be reduced by 3 million CD-Rom drives if the United States imposes ________ tax per CD-Rom drive on imported CD-Rom drives.
a $10
A price floor is
a minimum price set by government that sellers may charge for a good.
If a decrease in income results in a decrease in the quantity demanded for a product, the product is ________, and the value of the income elasticity of demand is ________.
a normal good; positive
Refer to Table 6.1. Assume that a store is giving hamburgers and sodas away for free. Consumers can have as many sodas and hamburgers as they want, but the food has to be consumed one unit at a time. If George has already had one soda and two hamburgers, then George should
be indifferent between consuming the second soda or the third hamburger
If two products are substitutes, the ________ elasticity of demand is ________.
cross-price; positive
The All Smiles Greeting Card Company wants to increase the quantity of greeting cards it sells by 20%. If the price elasticity of demand is -5.0, the company must
decrease price by 4.0%
Refer to Figure 6.6. Bill's budget constraint was originally EF. If his new budget constraint is CD, 29) then his income
decreased
Refer to Figure 4.5. If a $10.00 per CD-Rom drive tax is levied on imported CD-Rom drives, the United States will
import 3 million CD-Rom drives
Refer to Figure 6.2. Mr. Lingle's budget constraint is AC. His choice set is all points
in the area bounded by OAC
Assuming that leisure is a normal good, if an individual's labor supply curve is backward bending, then the
income effect outweighs the substitution effect at higher wages
If the price of a normal good rises, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good.
less; less
Jon is consuming X and Y so that he is spending his entire income and MUx/Px = 8 and MUy/Py = 4. To maximize utility, he should consume
more X and less Y
Issuing coupons, waiting in line, and catering to favored customers are all methods of
nonprice rationing
A shortage will occur if a ________ is set ________ the equilibrium price.
price ceiling; below
The difference between current market price and full costs of production for the firm is known as
producer surplus.
Refer to Figure 4.3. At an effective price ceiling for pencils
quantity demanded is greater than quantity supplied.
A government wants to reduce electricity consumption by 5%. The price elasticity of demand for electricity is -0.5. The government must ________ the price of electricity by ________.
raise; 10.0%
Luxury items tend to have ________ demand, and necessities tend to have ________ demand.
relatively elastic; inelastic
Total revenue increases if price ________ and demand is ________.
rises; inelastic
A rise in the price of Pepsi that causes a household to shift its purchasing pattern toward Coke and away from Pepsi is the ________ effect of a price change.
substitution
